If you're working with a buyer who is waiting until the "time is right" to purchase a new home, you may want to tell them to get a move on. Several developments within our legislative system have created new laws that may affect credit scores and lending structures.
President Barrack Obama recently signed a federal law to protect millions of consumers who rely on credit cards. The new law is far-reaching and will greatly change the credit industry as we know it. Credit cards will be more transparent and easier to understand for everyday consumers. Plus, credit card users will now have more time to pay their bill and there will be a limit to interest rate hikes.
Sadly, the credit card companies are upset about these changes, and are working hard to raise interest rates and lower credit limits before these changes go into effect. Basically, they want to profit as much as they can from the old system before they are forced to "make good" with the new system.
Understandably, this has played havoc with buyers' credit scores across the nation. Sales associates that are currently helping a buyer find a property should have them go ahead and pull their credit score, especially if it's been more than a month since it was last pulled. Sales associates can point them to Metro Brokers Financial's (MBF) Credit Doctor, which is available at www.metrobrokers.com/creditanalysis.asp.
In addition, many consumers are not aware that although FHA loans have become the number one loan product currently available, FHA has steadily tightened their loan guidelines. Since many consumers' credit scores have been negatively impacted by the recent occurrences in the credit market, they are now unable to meet FHA's new minimum credit requirements.
Judy Jones, Vice President of MBF, is encouraging all sales associates to be prepared for worsening conditions.
"The minimum credit score for most FHA investors is currently at 620," explains Jones. "A year ago, it was around 580. There is a bill in Congress (H.R. 3706) which proposes to raise the FHA down payment from 3.5% to 5%. Plus, FHA loans are taking longer to process due to the increase in volume."
As of Oct. 1, FHA also began requiring only certified appraisers for their loans, effectively lowering the amount of qualified appraisers by approximately 30%, resulting in more work for fewer appraisers. They are also pulling the borrower's filed tax returns from the IRS to review income and business expenses.
"The longer buyers wait, the worse the situation gets," says Jones. "Waiting to buy could result in missing the opportunity for a tax credit, missing a fixed mortgage rate that is at historic lows, missing the chance to buy a home with as little as 3.5% down and possibly even missing the opportunity to buy - period - because of increased underwriting requirements due to tightening in the secondary market and investor's fear of risk."
Sales associates need to be aware of the guidelines for FHA loans, and inform their buyers of the current market conditions. As the saying goes, "forewarned is forearmed".
For any questions, contact a MBF loan officer at 404.847.2525